I've stated that most people learn to draw Fibs incorrectly. Teachers perpetuate incorrectness because they've had marginal success and teach others what they've learned. Teachers tend to tell you to draw from swing high to swing low and visa versa. This is fallacy; draw from a level of support last gained or lost to a swing high or swing low. I will say this now, and until I cannot speak: Fib levels are nothing more than significant levels of . I drew them on the chart for those of you that are realizing your way is not quite as adequate as you like, and to help you understand that eventually, you no longer will need them. Additionally, it was also convenient to use the tool to help illustrate the point of this lesson.
If you've studied this chart, I made it as concise as possible, you may notice that I included two separate time frames, working together. The left depicts the 4Hr chart, illustrating the leg that price is currently concerned in retracing. The right illustrates how momentum shifts as we approach the support lost level of significance. Momentum is generated across time frames. Momentum is the stuff that creates trends. If a trend is to reverse, momentum must get dispersed first.
When prices bounces and is in a short term up move, as it approaches a level of significance, it must distribute. Price distributes on the way up to a support lost, and accumulates down to a support gained. Either way, prices will begin a sideways pattern or a pattern. If you're smart, you may have just picked up on something else: patterns are nothing more than either accumulation or distribution, which is the vehicle that drives momentum shifts as a significant level is approaching.
I cringe at the terms people sometimes use, "the market is sideways, it's waiting to make up it's mind." This is illogical nonsense. As I just said, price is sideways because it is either accumulating or distributing so that it can reverse off a significant level of support that was gained or lost and left untested.
Maybe you think I just got lucky. Actually, I tried to explain this rejection to another user who also has a bad habit of drawing Fibs incorrectly.
I've also included a on the smaller time frame chart to help you visualize distribution or momentum changing. This is the only time I use . It helps confirm a divergence. Why does divergence happen? Because momentum is shifting along multiple time frames.
I posted that chart over the weekend to help someone understand how to draw Fibs. Very few people seem to understand how S/R are gained and lost. Your objective once you learn, is to trade first tests, because they success rate is near 100%.